The saying “rain makes grain” has been a buzzword of traders for as long as I can remember. Too much rain is something foreign to those who have never experienced it, though. For traders, the negative effect of too much moisture on crop yields is something that is difficult for most people, even producers, to get their arms around to make a decent and objective yield estimate.
Variability from farm to farm, let alone variability within a field, makes surveys difficult. The luck of the draw of even a scientific yield-sampling method doesn’t remove variability. I suspect scouts on the
Pro Farmer Midwest Crop Tour had such difficulties.
Traders like to find similar years in the past to help ascertain production outcomes. Although every year is different, 1993 and 2010 stand out as years where the difficulties of excess moisture weren’t fully resolved until harvest neared completion. Each monthly government report gave new fundamental information that had a significant effect on price.
Although 1993 happened against a backdrop of flooding on the Missouri and Mississippi rivers, it bore similarities to this year. Observers had difficulty assessing yield and harvested acres. I think 2010 is a better comparison because it is more relevant in price action and more in line with current plant genetics. Many of the traders today were around in 2010 and recall it.
Current yield differences in corn, for example, range from 171 bu. per acre, a duplicate of this past year, to 163 bushels per acre. That’s a difference of about 640 million bushels of production*, something that can’t be ignored in a year where 200 million bushels to 300 million bushels is price-sensitive.
Look To The Past. The chart on this page shows December corn futures in 2010. December corn in 2010 posted a bottom in late June on USDA’s acreage and stocks reports, similar to how 2015 futures behaved. There were setbacks, but with each successive USDA report, the lows made by the previous month’s report were not taken out, and corn rallied.
The October report, known to be more accurate because harvest results are available from producers, created a gap higher on fundamentally bullish news.
The unknown this year is the degree to which improved corn genetics can withstand excess water.
In 2010, it took until the November report before all bullish fundamentals had been reported. A massive key reversal on Nov. 11 put the final top in place. Now, in a “realizing” market year, it might take longer to obtain truth. Otherwise, ag did not dodge a bullet as I had hoped, meaning we kicked the can down the road in terms of finding a solution to low prices.
*Correction: Because of an editing error, Jerry Gulke’s column incorrectly identified the scope of corn production estimates. The range of corn yield estimates could fail to account for up to 640 million bushels of total production. Top Producer regrets the error.”